Anticipating the Unintended is really a public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
If one were to write a book on stupid government regulations in India, sandalwood regulations would deserve nothing less than a full chapter.
First, the context. The production of sandalwood in India has declined considerably. In 1965-70, annual production stood at 4000 tonnes. By 1999-2000, it had decreased by half. And by 2019, it had become just 200 tonnes. Other countries supplied a total of 400 tonnes, as against the total global demand of 6000 tonnes a year.
Meanwhile, Australia, which had its own native sandalwood, shifted to the Indian variant in 1998, introduced genetically-engineered high yield varieties and beat India in its own game. So much so that India now imports Australian sandalwood for the sandalwood oil industry.
What was the reason, you ask? In this case, the causal link between government regulations and fall in production is direct. The story goes as follows, as told in this eye-opening piece by Dr M Govinda Rao:
- Tipu Sultan declared sandal a royal tree and monopolised the sandalwood trade in 1792.
- Successive governments followed this practice, even after independence. Even when the tree was located on private land, it belonged to the State Government and the owner of the land was required to make a declaration on the number of trees on his land.
- The forest officer could enter any private land and cut the trees and the range forest officer would give 75 per cent of the value as decided by him.
- In Karnataka and Tamil Nadu, in order to store, sell and process sandalwood, it was necessary to get a licence. Possession of sandalwood in excess of 20 kg was an offence.
- These perverse incentives led to a fall in production. To compensate for the shortage, a thriving black market emerged.
- The government could not protect even the plants in its forests. The mismatch between demand and supply made smuggling lucrative and paved the way for the likes of Veerappan!
- The government then created a large army of forest guards and personnel to “protect” the forests. The collusion of the forest staff with smugglers further caused the sandalwood to vanish.
Fascinating, no? Now, this is the story since 2001.
- The Karnataka government realised their mistake and allowed private players to grow sandalwood in 2001. Tamil Nadu followed suit in 2002. But but…
- Farmers could only sell the sandalwood back to the government. Realising that this was still a major stumbling block, the Karnataka government further liberalised sandalwood policy. But but…
- Starting 2009, the growers could sell their wood directly to semi-government corporations such as Karnataka State Handicrafts Development Corporation (KSHDC) and Karnataka Soaps and Detergents Limited (KSDL) (You know this was coming, didn’t you?!). Apparently, KSDL offers a non-negotiable sum of Rs 3,500 per kg of sandalwood. The company then turns around and sells the product for nearly Rs 16,000.
- And then, the government also announced a 75 per cent subsidy on sandalwood cultivation.
And so, there are still very few takers. Farmers have been demanding that they should be allowed to sell to international buyers but how can that be allowed, haww? How will the government produce sandal soap then?
Eventually, a nexus between a few private players and government will increase production but sandalwood will remain far from a competitive market. India will lose another opportunity, one worth 5400 tonnes of the royal tree.
I ended up reading several articles on this. If you too want to go down the rabbit hole, here:
- Sandalwood Farming in India: Problems & Prospects
- Corporate sector enters sandalwood plantation
- Sandalwood growers demand free market trade
- Return of scented wood
Read the full edition here.
Disclaimer: The views expressed in this newsletter belong to the author and do not represent the Takshashila Institution’s view.